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Panama INDUSTRY
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Figure 9. Location of Major Economic Activity
Industrial development has been uneven in Panama. Between 1965
and 1980, industry grew at an average annual rate of 5.9 percent;
between 1980 and 1985, that rate was negative 2.2 percent. In 1985
industry accounted for nearly 18 percent of GDP. Within the
industrial sector, manufacturing (based primarily on the processing
of agricultural products) and mining contributed 9.1 percent to
GDP, followed by construction (4.7 percent) and energy (3.4
percent).
Several factors contributed to the rapid expansion of industry
between 1950 and 1970. A 1950 law granted liberal incentives and
protection from imports to investors, including those in
manufacturing. An agreement in 1955 phased out a number of
manufacturing activities in the Canal Zone and opened a market for
such Panamanian products as bakery goods, soft drinks, meats, and
bottled milk. Foreign investment went into relatively large plants
for oil refining, food processing, and utilities. The government
invested in the infrastructure, especially in roads and the power
supply. A building boom increased the demand for construction
materials and furniture, further stimulating manufacturing.
Management gained experience during the period, and labor
productivity increased.
The stagnation in industrial growth during the 1970s resulted
from external and internal causes that reduced private investment.
Externally, the rise of oil prices, recession in the industrialized
countries, and uncertainty relating to the future status of the
canal clouded the investment climate. Domestically, a recession
reduced construction activity and lowered the demand for
manufactured goods. The government built cement and sugar mills to
compete with privately owned mills; it also implemented an agrarian
reform program, instituted a liberal labor code, and enforced rent
control laws. These measures created apprehension on the part of
investors, and although the government granted tax holidays, export
incentives, and protection from imports, private investment
declined. A key goal of the structural adjustment program of the
mid-1980s was to increase private investment in industry and to
make Panama's industry competitive internationally.
Data as of December 1987
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